Resources, banks do the lifting

There are reasons Australian investors give weight to the “barbell strategy" of being long resources and banks: they do the heavy lifting. As the S&P/ASX 200 Index broke through the 5000 barrier on Thursday for the first time since September 22, 2008, it was once again the miners and lenders that drove the measure back to that psychological level from the bottom of the bear market in March 2009.

They were also the biggest drivers when the S&P/ASX 200 climbed out of the dotcom bust to reach 5000 points for the first time ever on March 20, 2006.

Telstra
has the dubious honour of being the index’s biggest laggard during the market’s premier advance to 5000 in 2006 and also the current assault in 2010.

BHP Billiton
, the market’s biggest driver, has added 244.78 points, or 12 per cent, of the 1856.4 points the S&P/ASX 200 has gained since March 6, 2009, while
Rio Tinto
– the sixth biggest – has contributed 83.42 points.BHP remains the biggest weighting within the S&P/ASX 200 at XXX per cent. Every $1 rise in the miner’s share price translates to a XXX point gain for the index.

The places between BHP and Rio are all occupied by the major banks.

Mining companies are benefiting from a predominantly China-led global recovery in resources demand. Within the past few weeks, global diversified miners including BHP and Rio have managed to shift the benchmark pricing of their bulk commodities to a quarterly, rather than annual, basis and have been successful in securing higher prices for those raw materials.

Other commodity companies that have led the charge since last March include XXX (xxxx points), XXX and XXXXX.

The Big Four banks have also been instrumental in the market’s ascent, and have contributed a combined 621.46 points to the index since March 2009, representing 33.4 per cent of the measure’s gains.
Commonwealth Bank of Australia
is the primary driver among financials, contributing 214.58 points.

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CBA also has the second-largest weighting in the S&P/ASX 200 at xxx per cent, behind BHP. The Four Pillars, which have a combined index weighting of XXX per cent, together contributed XXX points, or XXX per cent, of the market’s 18XX point advance.

The share prices of both CBA and BHP - the two biggest companies in the Australian market – are roughly 10 per cent down from their record high levels, which were struck in 2008.

But the broader market is nowhere near taking out its previous peak. JPMorgan has calculated that the index is 13 per cent off its peak on a market capitalisation basis.

Sitting above 5000 points, the S&P/ASX 200 has taken about 13 months to recover 50 per cent of the 3683.2 points wiped off during the financial crisis. By comparison, when the market was recovering from the bear market after the dotcom bubble burst, it took just three months from March 2003 to put on half of the 797.2 points deducted from the S&P/ASX 200 during the 22.8 per cent, 12-month slump from March 2002. It took the market 15 months to fully recover those losses and begin chalking up new highs.

The financial crisis’s bear market was more savage in duration (16 months) and decline (54 per cent). And recovering 50 per cent of the losses has taken four times as long.

The 1000-point rise to 5000 in this recovery has taken just under 10 months. From December 2004 to March 2006, it took 15 months to rise – in what was ultimately uncharted territory – to 5000 points. The market then took 11 months to rise a further thousand points to 6000.

The biggest drag on the market since the March 2009 low, with a 4.21-point drop, has been Telstra. The telco’s status as a defensive stock meant it was shunned as investors piled into cyclical stocks on signs the economy was improving, but it has also been relegated to the doghouse after the government flagged it wanted to split up the company.

Other defensive stocks that have done little in the past 13 months to push the index back to 5000 include XXXXX ( -xx points), XXXXX (- xx points) and XXXXXX (-xx points).

But it’s déjà vu for Telstra shareholders.

After reaching a trough of 2700.4 on March 17, 2003 in the wake of the dotcom bust and slowdown, the S&P/ASX 200 took three years to climb more than 2260 points and close above 5000 points for the first time. In that period, Telstra shares backpedalled. The share price retreated 5.51 per cent, and it was the S&P/ASX 200’s biggest laggard as it subtracted 6.29 index points.

Woolworths, although weak in the current recovery, contributed 45.08 points to the S&P/ASX 200’s rise from March 2003 to March 2006.

In percentage terms, the best performers in the S&P/ASX 200 since the March 2009 low are XXXX, up xxx per cent, XXXX, up xxx per cent, and XXX, up xxx per cent. Down xxx per cent is XXX, followed by XXX, down xxx per cent, and XXX, down xxx per cent.